ABSTRACT
Taxation as a potent fiscal policy instrument through which
infrastructures and social services that drive the development process of any
society has been ineffective in Nigeria. The adoption of appropriate measures
is, however, are requirement for the generation of adequate tax and
appropriation of the revenue generated. This study set out to investigates Personal Income Tax And Economic
Development of Lagos State.
The research adopts ex-post facto research method. Data was basically collected by
secondary means through Lagos State Board of Internal Revenue and National
Bureau of Statistics. Data garthered span 2005 to 2014.
Four hypothesis were formulated and tested
with the used of regression analysis and T-test. Based on the result of the
analysis, the four null hypotheses were rejected and the alternate hypotheses
accepted. It was thereby concluded that; there is significant relationship between Poor Tax
Administration and the economic development of Lagos state; tax Evasion has significant
impact on the economic development of Lagos State; corruption of Tax collectors
has significant impact on the economic development of Lagos State and there is significant relationship between Non Compliance of Tax
Payers on tax laws and economic development of Lagos State.
Recommendations were proffered to
Lagos State Government among which is
drive be
resusciated because it is an effective way of enforcing tax compliance in a
developing country like Nigeria.
TABLE OF CONTENTS
Chapter
One: Introduction
1.1
Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Statement of Research Hypotheses
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitation
of the Study
1.9 Operationalization of Variables
1.10 Definition
of Key Terms
References
Chapter Two: Literature Review
2.1 Introduction
2.2 Conceptual Framework
2.3
Theoretical Framework
2.4 Empirical Framework
2.5 Gaps
in Literature
References
Chapter Three: Research
Methodology
3.1 Introduction
3.2 Research
Design
3.3 Population
of Study
3.4 Sample Representation
3.5 Sampling Technique
3.6 Re-Statement
of Research Hypotheses
3.7 Methods of Data Collection
3.8 Instrument of Data Collection
3.9 Validity and Reliability Test
3.10
Methods of Data Analysis
3.11 Model
Specification
Chapter Four: Data Presentation and Analysis
4.1
Introduction
4.2
Personal Characteristics of the Respondents
4.3
Testing
of Hypotheses
4.4
Calculating the
Percentage of Personal Income Tax in Total Tax
4.5 Discussion of Results from Hypotheses
Testing
Chapter Five: Summary, Conclusion and
Recommendation
5.0 Introduction
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
References
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO
THE STUDY
Tax is defined as money
that has to be paid to the government by the people according to their profits
on goods and services provided. Chris and Elizabeth (2001) also defined taxes
as a forced proportional contribution from persons and property levied by the
state by virtue of its sovereignty for the support of government and for all
public needs.
Generally, taxation can
be described as a form of levy imposed on all residents living and
non-residents doing business within a tax jurisdiction. It is a civic and
patriotic responsibility of citizens to pay taxes imposed which also come to
the government as income or revenue yielding device to finance the provisions
of socio-economic and infrastructural amenities and also to enhance industrial
efficiency.
The history of taxation
in Nigeria dates back to the pre-colonial period. According to Lekan and Sunday
(2006) before the colonization of the different entities which were later
amalgamated under the name Nigeria, there were different systems of taxation
existing in the form of compulsory services, contribution of goods, money,
labour and so on amongst the various kingdoms, groups and tribes controlled by
the Obas, Emirs, Ezes, Attah of Igala, Tor of Tiv, Ohinoyi of Ebira and so on
in order to sustain the monarchs.
The various taxes levied
by the different ethnic groups by the kings according to Ola (2004) took
several forms such as ‘Zakkat’ levied on Moslems for educational, charitable
and religious purposes, ‘kudin-kasa’, a form of an agricultural tax levied on
utilization of land, ‘shuka-shuka’ levied on the ownership of cattle based on
the member of cattle, ‘Ishakole’- contribution of farm products as a form of
land tax in exchange for the use of land for agricultural purposes payable to
Obas, chiefs and family community heads, community tax payable by all adults in
order to execute projects beneficial to the community; ‘Oko-ane’ payable to
Attah Igala for hunting in a particular forest, ‘Osusu Imachi-Nkwu’ payable to
Ezes in Igbo land by those who harvest palm fruits and are expected to
contribute proportion of the harvested palm oil. In Tivland in Benue state
certain taxes are paid by couples during marriage ceremonies which are used for
various community development projects.
The present form of
taxation in Nigeria could be traced to the establishment of a British colony in
Lagos on August 6, 1861 and subsequent amalgamation of the Southern and
Northern protectorates of Nigeria in 1914.
During the colonial era
according to Yerokun (1997), the imposition of any type of tax on citizens
(individuals and corporate) took the form of promulgation of laws by the
colonial authority. Examples of such law include Native Law ordinance cap 74 of
1917 applicable to Western Nigeria. The re-enactment of the same law in 1929
according to Ola (2004) which for the first time imposed taxes on women
resulted in the Aba women riot of 1929. Another law was that of non-natives
protectorates tax ordinance of 1931. The ordinance was later repealed and incorporated
into the taxation ordinance No. 4 of 1940 and subsequently re-enacted as the
Income Tax Ordinance (ITO) 1943.
The above tax laws
according to Yerokun (1997) were administered on individuals and corporate
entities by various tax and revenue officers in the different provinces and
regions. In order to promote uniformity in the incidence of taxation throughout
the geographical entity called Nigeria according to Lekan and Sunday (2006),
the colonial government in 1958 set up the Raisman Commission. The commission
at the end of its work recommended the introduction of uniform basic income tax
principles for application in all regions of Nigeria. This recommendation was
accepted by the government which incorporated the same into the 1960
constitution of the Federal Republic of Nigeria. This led to the promulgation
of the Income Tax Management Act (ITMA) 1961 and Companies Income Tax Act
(CITA) 1961.
The above legislations
(ITMA and CITA) 1961 were later repealed and re-enacted as the Personal Income
Tax Act (PITA) 1993, and the Companies Income Tax Act CAP 60 LFN, 1990
respectively. As a result of the work of the Tax Laws Review Commission, these
laws have been reviewed and updated and are included in the laws of the Federal
Republic of Nigeria 2004. The current law that governs the administering of
Personal Income Tax (PIT) is the Personal Income Tax Act Cap. P8 LFN 204 which
imposes tax on incomes of individuals and corporations.
Tax according to
Nightingale (2000) under any jurisdiction is discriminatory in the sense that
it is assessed on persons or property based on profits/incomes or gain, the
benefit derived by citizens from tax payment is without reference to the
contribution of individual tax payers. In line with this, according to
Ariwodola (2000) it is accurate to say that the primary objective and purpose
of taxation in most nations of the world is essentially to generate revenue for
government expenditure on social welfare such as provision of defense, law and
order, health services and education. Revenue from taxation can also be spent
on capital projects otherwise called consumer expenditure, creating social and
economic infrastructure which will improve the social life of the people.
In Nigeria today, tax administration has been a challenge Naiyeju, J.K.
(2010) highlight the various Challenges of the Tax collection and
Administration in Nigeria Today as Administrative Challenge, Compliance
Challenges, Lack of Equality, Challenge of Multiple taxes, Poor Taxation Drive
by tiers of Government, Challenge of Bad Governance, Challenge of Corruption
and Challenges of Human Capacity Building and Training.
The aim of this research
project is to look into various constraints faced in the administration of
Personal Income Tax and examine its economic benefits to the development of
Lagos State. Also, proffering solutions as regards strategies to be adopted by
revenue authorities for expanding the Nigerian tax net to improve tax
collection drive.
1.2 STATEMENT OF THE
PROBLEM
Personal Income Tax is a
global and wide topic that undisputedly requires investigation and provision of
possible solution to the problems associated with effective administration of tax.
Most of the Tax
authorities (especially the States and Local Government) lack the desired
institutional capacity to administer effectively the taxes under their purview
(capacity in terms of staffing, skills, salary pay, other funding, computer and
IT infrastructure etc).
Non-compliance of employers to register their employees and remit such
taxes to relevant tax authorities. Many evade the tax in the cities and rural
areas.
SMEs, informal sectors and even big companies carry out evasive practices.
The bulk of PIT today are paid by only the employees. Politicians, the
rich, professionals and the privileged, few are not equitably taxed. Multiple
taxes is still a major problem besetting our tax collection and administration.
Poor Taxation Drive by tiers of Government: The political economy of
revenue allocation discourages a proactive revenue drive, especially by the
states and LGs. They heavily rely on their share of the oil revenue.
Challenge of Bad Governance: Taxpayer are not encouraged to pay more
taxes because there is no visible evidence of good governance.
Challenge of Corruption: The tax collection and administration is often
prone to corruption. The corruption risk erodes the tax yield and confidence in
the system.
Challenges of Human Capacity Building and Training: At the States and Local
Governments, there is dearth of capable hands to administer the relevant taxes
efficiently.
The identified problems can be
summarized as follows;
i.
Poor
tax administration
ii.
Tax
evasion
iii.
Corruption
of tax collectors
iv.
Noncompliance
with tax laws by tax payers
1.3 OBJECTIVES OF THE STUDY
The main objective of
this study is to evaluate the impact of Personal Income Tax on economic
development of Lagos State.
The specific objectives are:
i.
To
examine the impact of poor tax administration on the economic development of
Lagos State.
ii.
To
examine the effect of tax evasion on the economic development of Lagos State.
iii.
To
determine the impact of Tax collectors on economic development of Lagos State.
iv.
To
determine the effect of noncompliance on tax revenue generated by Lagos State.
1.4 RESEARCH
QUESTIONS
In order to achieve the purpose
of this research study, the study attempts to provide answers to the following
research questions in order to arrive at a logical conclusion
i.
How
does poor tax administration affect the economic development of Lagos state?
ii.
To
what extent does tax evasion affect the economic development of Lagos state?
iii.
To
what extent does corruption of tax collectors affect the economic development
of Lagos state?
iv.
How
does noncompliance by tax payers affect the economic development of Lagos
state?
1.5 RESEARCH HYPOTHESES
In a research work,
hypotheses are never proved or disproved, they are either supported (i.e.
accepted) or rejected. To provide answer to the research questions arising from
this study, the following hypotheses are postulated.
HYPOTHESIS ONE
Ho: There is no significant relationship
between Poor Tax Administration and the economic development of Lagos state.
H1: There is significant relationship
between Poor Tax Administration and the economic development of Lagos state.
HYPOTHESIS TWO
Ho:
Tax Evasion has no significant impact
on the economic development of Lagos State
H1:
Tax Evasion has significant impact on
the economic development of Lagos State
HYPOTHESIS THREE
Ho:
Corruption of Tax collectors has no
significant impact on the economic development of Lagos State
H1:
Corruption of Tax collectors has
significant impact on the economic development of Lagos State
HYPOTHESIS FOUR
Ho:
There is no significant relationship
between Non Compliance of Tax Payers on tax laws and economic development of
Lagos State
H1:
There is significant relationship
between Non Compliance of Tax Payers on tax laws and economic development of
Lagos State
1.6 SIGNIFICANCE OF
THE STUDY
The researcher is
motivated to study the ways through which Personal Income Tax impact economic
development.
The information contained
will benefit the society at large as it will expose the society to the need to
pay tax and consequence of failure to pay tax.
The study will no doubt
charge the aggressive attitude of an average Lagosian towards the payment of
tax and collectors of taxes who were hitherto regarded as enemies.
Owing to the present
steps taking by federal government in re-branding the economy activities, the
research work will recommend measure that will be taken by the state Board of
internal Revenue, Federal Inland Revenue Services, budget and Planning
department and other government decision making bodies ways to enhance
effective administration of her services and achieve immensely her stated
objectives, especially in the area of tax administration on revenue generation.
The study will also
unleash problems affecting tax effectiveness, which if appropriate corrective
measures taken will go a long way in improving the state internally generated
revenue machineries of the government.
Finally, the research
work will be relevant to other researchers who wish to make further research of
Personal Income Tax and Taxation in general.
1.7 SCOPE OF THE
STUDY
This research work tends
to examine the impact of Personal Income Tax (PIT) on economic development. The
scope of the research covers tax authorities of Lagos State Government
specifically Lagos State Board of Internal Revenue. The population of the study
includes all tax payers working in Lagos State. This research tends to cover
Lagos State of Nigeria and will be concluded within an academic session. Data
were garnered from Lagos State Bureau of Statistics and Lagos State Internal
Revenue Service
The research cover
revenue generated by Lagos State for a period of ten (10) years; between 2005
and 2014.
1.8 LIMITATIONS OF
THE STUDY
The major limitations
however envisaged in the course of
research work is the unavailability of absolute correct appropriate and needed
information to be provided by the respondent, time to cover a large number of
respondent and cost to run them. An appreciable amount of co-operation on the
respondent part will be of paramount importance to the success of this project.
The major envisage limitations
are:
Access to Data: inability to access relevant information is a foreseen
challenge to the success of this research. The tax authourity may not reveal
data or a true information which they which they may chose to keep for
themselves.
Time Constraint: this study would have choose to cover a larger scope to
consider the thirty-six state tax authority which would yield a more reliable
result but due to the limited time available, the scope is limited to Lagos
State tax authority.
High cost of running a large area: Also the financial implication of
covering the entire nation could be a predicament to the success of this
research.
Despite all this
limitations mentioned above and hindrances, the research study no doubt will
turn out to be successful.
1.9 OPERATIONALIZATION OF
VARIABLES
Y = Dependent
X = Independent
Y = f(X)
EDLSG = f(PIT)
EDLSG will be represented by Total
Income Generated
y1 = Total Income
Generated x1 = Poor Tax
Administration
y2 = Total Income
Generated x2 = Tax Evasion
y3 = Total Income
Generated x3 = Corruption
y4 = Total Income
Generated x4 = Non Compliance
y1
y2
y3
y4
y1 + y2 + y3
+ y4 =
f(x1 + x2 + x3 + x4)
TIG = f(PTA + TEV + CRP + NCP)
1.10 DEFINITION OF
KEY TERMS
Words that are frequently
used in this research work are short listed here and briefly discussed to
enable the reader get equipped with their meaning. Some which are:
Tax: This can be defined as a compulsory transfer of resources and Income
from the private sector in order to achieve some of the nation ¡§economic goals
Okpe (1998: 109)
Tax Evasion: Here, the tax payer adopts illegal means so as to pay less
than he should ordinarily pay. ¡§It is also involves an unlawful refusal or
neglect by a tax payer to pay the tax due.¡¨ J.C Aroh & E.O Nwadialor
(2009: 352)
Tax Avoidance: This is a means where by the tax payer arranges his affairs
legally so that he pays less tax than he should otherwise pay.
Revenue Generation: This is systematic gathering / collection of income revenue.
Revenue: This could be described as an income accruable to person(s), government
and organization.
Statutes: This is a legal frame work upon which actions/ inaction are based.
Tax Jurisdiction: This refers to an area where one tier of government has
power to collect tax.
Tax Allowance: This refers to the proportion of income exempted from tax.
Tax Holiday: This is a period of grace granted to a company during which
it¡¦s income is not subjected to tax.
Taxable Income: This refers to that proportion of income that is liable to
tax.
P.A.Y.E (Pay As You Earn): is one of the systems of personal income tax based on
the proportion of the income usually deducted at source.
PIT (Personal Income Tax): Tax
paid on one's personal
income as distinct from the tax paid on the firm's earnings.
PITA (Personal
Income Tax Act): Is the amendment of the Personal
Income Tax Cap P8, LFN 2004.
YOA
(Year Of Assessment): refers to the year in which income tax is assessed on the company.
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